Social security reform under debate

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A government committee has been set up in Portugal to examine the framework for reform of the country's social security system and to make proposals for change. Consultations with the social partners were launched in late June 1997.

The Portuguese social security system covers the majority of workers (both employees and the self-employed) through what is known as the "general system". The non-contributory system and the base-line income system (rendimento mínimo garantido- PT9703107F) cover those in need. Social security also includes assistance provided to the resident population in the form of services and amenities. There also exist a few restricted systems, among which the special social security scheme for agricultural activities, generally regarded as comparable with the non-contributory system, is of particular importance.

In material terms, the system includes provision for payment in place of lost income because of maternity, illness (including occupational illnesses), unemployment, disability, old age and death. It also issues payments to compensate for increased expenses, such as family allowances, available on a discretionary basis, and subsidies for those providing assistance to third parties.

The general system is financed by workers' contributions and, in the case of the non self-employed, contributions from their employers. A proportion of the contributions to the general employees' scheme is intended to finance active employment measures, and this is also how the Portuguese contribution to match transfers from the European Social Fund is financed.

Contributions are payable on all income, with the exception of a few groups, in particular the self-employed. The latter make payments according to a scale based on the guaranteed minimum wage (salário mínimo garantido) applicable to the majority of employees. According to the law, non-contributory and similar schemes and social assistance, including administrative costs, should be financed by transfers from the state budget.

Social Security White Paper Committee

As a result of the need to update the social security system to deal with new social and economic challenges that are emerging as we approach the end of the century, and the difficulties in ensuring the system's financial sustainability, the current Government, which came to power in October 1995 (Portugal's 13th constitutional Government, as it is referred to), set up a Social Security White Paper Committee (Comissão do Livro Branco da Segurança Social) to examine the various alternatives and to propose measures.

The framework for reform of the social security system in Portugal has specific features. For various reasons, there have been long periods during which there has been an enormous increase in the number of pensioners receiving very low pensions, and this is so even today, regardless of the minimum level of pension laid down, owing to the almost complete absence of guaranteed periods for awarding pensions. The state is among those whose contributions to the system are in arrears, and it has failed to meet its obligations under the law on the financing of non-contributory and similar schemes and social assistance. The system has come under extensive government control, particularly because there is no suitable means by which employers and employees can participate in its management.

Given the situation, it is very difficult for the slightest consensus to be reached as to what steps should be taken. One indicator of that difficulty is the fact that there are widely differing positions within the Committee itself, resulting in more than one version of the Green Paper - the preliminary version of the White Paper - having been issued for discussion by the social partners and other interested parties.

Some committee members believe profoundly that a wage ceiling on contributions must be reintroduced to ensure the system's financial sustainability. They also believe in making the retirement age more flexible and introducing a compulsory secondary pension, which in the current circumstances could be managed only by the profit-making private sector. Other members are of the opinion that any ceiling on contributions should be avoided. Their view is that the main requirements are to: improve the system in terms of organisation, financing and the level of contributions; increase the redistribution provided by the system; safeguard acquired rights; make the retirement age more flexible; establish means by which employees and employers can become genuinely involved in the system; develop the capacity of the private non profit-making sector to manage voluntary supplementary occupational schemes; and to ensure sustainability, negotiate with the state for the latter's payment of its arrears resulting from its failure to meet its obligations to finance social assistance and non-contributory and similar schemes.

Views of the social partners

Preliminary versions of the White Paper were issued to the social partners at the end of June 1997 to open the debate, which it is hoped will be thorough-going and enlightening, and to answer any questions that might arise. The deadline for discussions by the social partners is set for two months. Criticisms and suggestions may be lodged up to the end of September.

However, because the social security question is included in the current Strategic Social Pact 1996-9, the social partners have reserved the right to submit their observations at a later date, despite the large number of reasoned proposals made by the committee, and have expressed a number of opinions on the documents in question. The Pact was signed on 20 December 1996 by the Government, the General Workers' Union (União Geral de Trabalhadores, UGT), the Confederation of Portuguese Farmers (Confederação dos Agricultores de Portugal, CAP), the Confederation of Portuguese Industry (Confederação da Indústria Portuguesa, CIP) and the Confederation of Portuguese Commerce (Confederação do Comércio e Serviços de Portugal, CCP). Also significant in this context is the recent publication of a book on the issue of social security by the General Confederation of Portuguese Workers (Confederação Geral dos Trabalhadores Portugueses, CGTP) ("Evolução e Problemas da Segurança Social em Portugal no Após 25 de Abril" ("The development and problems of social security in Portugal since 25 April 1974"), CGTP, 1997).

Commentary

Workers' representatives believe that social security reform is not viable without tax reform, and have expressed their support for the so-called public social security system and the European social model. Nevertheless, they feel it must be adapted to new social circumstances and the labour situation. They have rejected the reintroduction of a ceiling on contributions, and believe that alternative or supplementary methods of financing should be sought, together with means of prompting the state to pay its debt. The unions feel that, if there is a secondary pension, it should be included as part of a supplementary voluntary scheme, and that there is no guarantee that a new model based on the proposals outlined would be any more suitable in practice than the current system.

Employers' representatives have also been unreceptive to a ceiling on contributions. Their concerns centre on adjusting the system to reflect changes in contractual relations. Moreover, they believe that many of the existing problems arise from slackness, in particular administrative procedures for controlling breaches in social security regulations.

The debates are set to continue and a clearer picture of the shape that social security reform is likely to take will not emerge before the end of the year. (Maria Bento)

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